In a wide ranging White House news conference, the 17th of his Presidency, Mr Bush said that terrorists intent on disrupting the democratic process will be defeated.

Speaking after the bomb attacks in the Shiite holy cities of Karbala and Najaf on Sunday that killed 66 people, President Bush said insurgents were intent on delaying the elections set for January 30.

“There are very hopeful signs but, no question about it, the bombers are having an effect,” he said. “They’re trying to shake the will of the Iraqi people and, frankly, trying to shake the will of the American people.”

But President Bush, said “the terrorists will fail, the elections will go forward, and Iraq will be a democracy that reflects the values and traditions of its people”.

The escalating violence has prompted some Iraqis to call for a postponement of next month’s elections, which the Bush administration sees as the culmination of last year’s drive to oust Saddam Hussein.

But President Bush rejected the idea, citing his promise to increase US troop levels in Iraq for the elections and to continue to train Iraqi security forces.

He cautioned that next month’s elections in Iraq were only the beginning of a long process toward democracy.

“I certainly don’t expect the process to be trouble-free,” Mr Bush said as he addressed next year’s agenda ranging from overhauling Social Security to the elections in Iraq.

President Bush also expressed disappointment with US-trained Iraqi troops who have abandoned the battlefield

“When the heat got on, they left the battlefield – that is unacceptable,” he said.

On domestic issues, Mr Bush said he would submit a federal budget that would cut the deficit in half in five years and maintain strict spending discipline.

His fiscal 2006 budget is due to Congress in February.

“We will submit a budget that fits the times. It will provide every tool and resource to the military, will protect the homeland, and meet other priorities of the government,” he said.

But he also said he would “maintain strict discipline in spending tax dollars”.

On a tough issue at home, a growing number of lawmakers, including Republicans, voicing no confidence in Defence Secretary Donald H Rumsfeld. President Bush defended his Pentagon chief.

“He’s doing a very fine job,” Mr Bush said.

And he also defended his close ties to Russian President Vladimir Putin, with whom he has had disagreements over the war on terror and, more recently, over the disputed elections in Ukraine.

“The relationship’s an important relationship and I would call the relationship a good relationship,” President Bush said.